Working Group
Effective ESG talent strategies are underpinned by clear governance, new hiring practices and internal skills development
Effective ESG talent strategies are underpinned by clear governance, new hiring practices and internal skills development
As the need to improve sustainability accelerates across modern business so, too, has the need for companies to develop sustainability expertise.
With sustainability budgets expected to rise to 5.5% of a company’s annual turnover in 2023, according to Sustainability Leaders’ Sustainability Planning Guide 2023, many companies plan to allocate a proportion of this resource to new sustainability hires. CSOs anticipate central sustainability headcount will increase from an average of seven direct reports in 2022 to 12 by the end of 2023.
However, these numbers do not include sustainability personnel based in other functions. At an average of 80, the number of staff who work on sustainability projects but report to leaders in R&D, procurement and finance is far greater than the number of employees in central sustainability. This is creating a diverse skill set spread across multiple functions.
As such, the challenge for many companies is to understand the different skills they need to deliver their sustainability strategies, hire the appropriate staff and create a working structure to oversee this diffuse workforce effectively. This is leading companies to employ new methods to hire such expertise, which Sustainability Leaders’ working group of 11 companies explored during sessions help between September and October 2022.
One of the key decisions leaders face is the extent to which they recruit ESG expertise externally or develop staff internally.
Qualified sustainability professionals are now in high demand and can charge a premium in salary negotiations. In certain industries and regions, working group participants found that competitors will often out-bid them for certain skill sets, such as sustainable design and engineering, effectively pricing them out of hiring that individual. For example, one organisation revealed salary offers to environmentally trained engineers may be increased by up to 25% by its competitors.
In such a competitive environment, leaders are considering carefully whether they can overcome skills caps by developing expertise internally.
“We are offering young engineers salaries of just shy of six figures, but we often lose out to competitors with bigger budgets. And not by a small amount – we’re losing people for $20,000 to $25,000. And these are not senior engineers – they’re in their mid-20s”
CSO, automotive company
This decision will usually rest on a mixture of factors, such as budget, resourcing and internal appetite for sustainability roles. With the example of the environmental engineer above, existing engineers could have been trained in environmental engineering techniques, but resourcing would not have allowed for them to be taken away from their original roles. However, for another organisation that needed to hire sustainable sourcing managers in procurement, existing procurement experts were trained on ESG principles, as there was interest in taking up the role and resourcing that allowed for it.
Participants felt it is often better to recruit externally for certain ‘hard’ skills – such as sustainable design or technical ESG reporting – as it would take too long to train staff in these areas. Leaders should, therefore, consider whether they require certain skill sets urgently to deliver their sustainability strategies and assess that alongside the budget and resourcing available when making a decision.
The skills that companies require can be divided into two broad categories: those required to work in the central sustainability office; and those required to implement ESG projects within different business functions. Skill sets for the former usually focus on strategy, stakeholder engagement and reporting; while the latter could include anything from responsible sourcing to sustainable design expertise.
In light of new disclosure requirements in both Europe and the US, central sustainability teams are primarily looking to recruit individuals who can support their nonfinancial ESG metrics reporting initiatives.
In the US, this relates to the Securities and Exchange Commission’s proposals for new ESG reporting rules. These will require public companies to share a range of climate-related information in their filings, necessitating many to alter their ESG reporting to comply with the new standards.
In Europe, the European Union’s Taxonomy defines several activities considered environmentally sustainable for companies operating in the bloc as it is implemented over the coming years. The Taxonomy Regulation, which establishes six environmental objectives, came into force in July 2020 while the first act on sustainable activities was adopted in June 2021. More activities surrounding nuclear and gas are expected by early 2023, and will be a key reporting consideration for sustainability teams.
Reflecting the view of respondents to the Sustainability Planning Guide 2023 that Scope 3 is the largest barrier that most companies face in achieving their ESG targets, the main skills that cross-functional sustainability teams are recruiting for relate to reducing this footprint. Sustainable design and R&D – critical for addressing downstream impacts in value chains, as well as Scope 1 emissions – is the most common skill set outside of central sustainability. Technical procurement, important for addressing upstream impacts in supply chains, is the second.
“The skills needed differ by scope. Within our breweries, we’re recruiting project engineer to help with utilities projects to address Scopes 1 and 2. To address our scope 3 footprint, we’re hiring sustainable sourcing specialists”
Director of procurement, beverage company
The data in Figure 1 masks some differences between industries, however. Up- and downstream Scope 3 impacts, while still important, are largely associated more closely with goods and manufacturing companies. As such, R&D and procurement skills do not feature as prominently for services companies. Instead, such organisations will focus more on hiring reporting, strategy and collaboration-linked roles, highlighting these companies’ need to address sustainability through partnerships (see Figure 2, below).
Leonardo has strategic relationships with several UK universities to develop its engineering research capabilities. These partnerships significantly improve the company’s ability to access the skills it needs to achieve its sustainability objectives.
University partners include, but are not limited to, the following institutions:
All of the above projects have been funded by Leonardo. These and other such university projects are predominantly funded by the company’s R&D department, as opposed to the central sustainability team. This is partly because of access to resources, but also because the projects support Leonardo’s product development needs. If a project proves successful, Leonardo offers students the opportunity to develop their careers with the company.
Leonardo’s team of university liaison officers facilitate contact with universities. The liaison officers possess engineering, research and design experience, and serve as the link between the company’s design function and its university partners, translating Leonardo’s future product needs into course content while encouraging students to study programmes relevant to those product needs.
A key challenge for modern businesses is to align these different skill sets and staff work towards common ESG goals. Although central sustainability and cross-functional teams are in regular contact with one another, working group participants reported that their talent strategies and operating structures are mostly independent. This can create conflict in terms of which skills teams invest in and the types of work staff focus on.
Most companies now have in place a hybrid governance model to manage this conflict, where responsibility is shared between a central sustainability office and cross-functional personnel. The way in which hybrid governance is managed varies from company to company, however. At one energy company, for example, the central sustainability team’s main role is to provide strategic direction to the functions, which have autonomy over the skills they hire or develop to deliver that strategy.
“It doesn’t help to have subject experts only in the central sustainability functions; they must be in the functions, too. The difficulty then becomes how we enable effective collaboration between the central office and these functions”
CSO, scientific services company
A similar structure exists at several other organisations. To help ensure that central sustainability influences the skills for which leaders in other functions hire, one pharmaceutical company formed an ESG steering committee, comprised of each function head. The steering committee allows for the central sustainability team to make recommendations on the skills required to fulfil its ESG strategy, which is then cascaded into functional leaders’ hiring practices, where feasible.
Adopting a governance structure that allows for alignment across the business is essential. As one participant said: “You have to empower different groups around the company to manage ESG risks that are pertinent to them; otherwise, you won’t make any progress.”
About the research
The findings of this working group were informed by three working group sessions that took place between September and October 2022, with the following companies participating: Becton Dickinson, Colgate-Palmolive, Heineken, Jabil, Leonardo, Mondelez International, Perfetti Van Melle, Polaris, RWE, Telus and Thermo Fisher Scientific.
